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Item 7. Management’s Discussion and Analysis

2022-05-25 compared with 2021-05-26 · 124 added, 193 removed, 111 unchanged (74% of the section changed)

Management’s Discussion and Analysis of Results of Operations and Financial Condition

This section should be read in conjunction with our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

This section should be read in conjunction with our consolidated financial statements included in Item 8 of this Form 10-K.

EXECUTIVE OVERVIEW

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In accordance with our Blueprint for Growth 2.0 Strategy, we are simplifying the business utilizing our 80/20 process, improving our operational excellence, and ramping the growth engine by investing in new product development and a digital platform to grow profitably.

Shareholder value will be enhanced by expanding EBITDA margins and return on invested capital ("ROIC").

We believe shareholder value will be enhanced by expanding EBITDA margins and return on invested capital ("ROIC").

Our revenue base is geographically diverse with approximately 41% derived from customers outside the U.S.

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Dorner, headquartered in Hartland, Wisconsin, is a leading automation solutions company providing unique, patented technologies in the design, application, manufacturing and integration of high-precision conveying systems.

The acquisition of Dorner accelerates the Company’s shift to intelligent motion and serves as a platform to expand capabilities in advanced, higher technology automation solutions.

Dorner is a leading supplier to the stable life sciences, food processing, and consumer packaged goods markets as well as the high growth industrial automation and e-commerce sectors.

The addition of Dorner provides attractive complementary adjacencies including sortation and asynchronous conveyance systems.

Further, on December 1, 2021, the Company completed its acquisition of Garvey.

Garvey is a leading accumulation systems solutions company providing unique, patented systems for the automation of production processes whose products complement those of Dorner.

The acquisitions of Dorner and Garvey accelerate the Company’s shift to intelligent motion and serve as a platform to expand capabilities in advanced, higher technology automation solutions.

Regardless of the economic climate and point in the economic cycle, we constantly explore ways to increase operating margins as well as further improve our productivity and competitiveness.

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steel and aluminum enclosures and wire harnesses;

electro-mechanical components and standard variable drives.

electro-mechanical components;

and standard variable drives and controls.

These commodities are all available from multiple sources.

We purchase most of these raw materials and components from a limited number of strategic and preferred suppliers under agreements which are negotiated on a company-wide basis through our global purchasing group.

Generally, as we experience fluctuations in our costs, we reflect them as price increases to our customers with the goal of being margin neutral.

Currently, as a result of global supply chain challenges, we are experiencing higher raw material costs and availability issues for select raw materials and components.

To date, we have raised prices to our

customers to cover these increased raw material costs and are working with our supply base to prioritize shipments and improve availability of key components.

We operate in a highly competitive and global business environment.

We face a variety of opportunities in those markets and geographies, including trends toward increasing productivity of the global labor force and the expansion of market

opportunities in Asia and other emerging markets.

While we execute our long-term growth strategy, we are supported by our strong free cash flow as well as our liquidity position and flexible debt structure.

Like many global companies, we have been, and continue to be, affected by COVID-19.

During fiscal 2021, we took appropriate measures to generate positive operating income and protect the cash flow and liquidity of the Company.

This included reducing our cost base, reducing working capital needs, and reducing capital expenditures.

These measures helped contribute to positive operating income and strong cash flow throughout fiscal 2021 despite the impact of COVID-19.

The Company is moving from its past as an industrial company to a top-tier intelligent motion company.

We have refocused our Company on faster growing markets as demonstrated by the Dorner and Garvey acquisitions.

We are benefiting from increased trends for safety, industrial automation, manufacturing on-shoring and workforce productivity initiatives.

Our long-term growth strategy is supported by our strong free cash flow as well as our liquidity position and flexible debt structure.

RESULTS OF OPERATIONS

The following discussion is a comparison between fiscal 2022 and fiscal 2021 results.

For a discussion of our results of operations for fiscal 2021 compared to fiscal 2020, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, which was filed with the SEC on May 26, 2021.

Fiscal 2022 Compared to 2021

Fiscal 2021 sales were $649,642,000, a decrease of 19.7%, or $159,520,000 compared with fiscal 2020 sales of $809,162,000.

Sales for the fiscal year were negatively impacted by $177,233,000 in decreased sales volume as a result of the COVID-19 pandemic, offset by price increases which positively impacted sales by $8,566,000.

Favorable foreign currency translation increased sales by $9,147,000.

Fiscal 2022 sales were $906,555,000, an increase of 39.5%, or $256,913,000 compared with fiscal 2021 sales of $649,642,000.

Sales for the fiscal year were positively impacted by $144,587,000 of incremental sales from the Dorner and Garvey acquisitions as well as increased sales volume of $89,955,000 and price increases of $20,002,000.

Favorable foreign currency translation also increased sales by $2,369,000.

Gross profit was $315,730,000 and $220,225,000 or 34.8% and 33.9% of net sales in fiscal 2022 and 2021, respectively.

The fiscal 2021 decrease in gross profit of $62,961,000 or 22.2% is the result of $62,797,000 in lower sales volume, $15,980,000 in decreased productivity and unfavorable manufacturing costs, and $382,000 received in the prior year from an insurance settlement which did not reoccur.

These decreases were offset by $8,311,000 of price increases net of material inflation, $2,189,000 from a gain recorded for a building sold in China classified as Cost of products sold, $1,705,000 in decreased tariffs, $223,000 in decreased product liability costs, $207,000 in decreased severance costs, and $128,000 in lower costs incurred in fiscal 2021 to consolidate the Company's Ohio operations.

The fiscal 2022 increase in gross profit of $95,505,000 or 43.4% is the result of the Dorner and Garvey acquisitions, which added $53,627,000 of gross profit net of acquisition related costs, $30,746,00 in higher sales volume, $10,551,000 in higher productivity net of other manufacturing cost increases, $5,953,000 of price increases net of material inflation and $2,671,000 in prior year factory closure costs which did not recur.

These increases were offset by $3,045,000 in increased product liability costs, $2,627,000 in increased tariffs costs, $2,189,000 from a gain recorded in the prior year for a building sold in China classified as Cost of products sold that did not recur, and $776,000 in increased severance costs in fiscal 2022.

The translation of foreign currencies had a $594,000 favorable impact on gross profit for the year ended March 31, 2022.

Selling expenses were $99,187,000 and $76,907,000, or 10.9% and 11.8% of net sales in fiscal years 2022 and 2021.

Selling expense decreased primarily due to lower variable selling costs and cost measures put in place as a result of the COVID-19 pandemic in fiscal 2021.

Selling expense increased $15,161,000 as a result of the Dorner and Garvey acquisitions.

The remaining increase is due to variable selling costs as the Company continues to recover from the COVID-19 pandemic.

Foreign currency translation had a $304,000 unfavorable impact on selling expenses.

General and administrative expenses were $102,128,000 and $76,035,000 or 11.3% and 11.7% of net sales in fiscal 2022 and 2021, respectively.

The decrease in general and administrative expenses was due to $1,674,000 in prior fiscal year factory closure and business realignment costs which did not reoccur in the current fiscal year, $1,452,000 in reduced bad debt expense, a $449,000 gain in general and administrative expenses as a result of the Company selling one of its owned manufacturing facilities in China, $409,000 in decreased medical expenses, and $356,000 in lower legal costs related to an insurance recovery legal action which was settled in fiscal 2021.

A reduction in travel related business expenses and professional services in response to the COVID-19 pandemic further contributed to the reduction in general and administrative expenses.

These decreases were offset by $4,161,000 of higher stock compensation expense, of which $1,981,000 was reversed in the prior fiscal year for shares that were forfeited upon the former Chief Executive Officer's resignation, offset by $418,000 in lower incentive compensation expense in the current fiscal year.

$3,951,000 in Dorner acquisition costs also contributed to higher general and administrative expenses in fiscal 2021.

The increase is primarily due to the Dorner and Garvey acquisitions adding $10,596,000 of ongoing general and administrative costs and $5,625,000 of acquisition deal costs.

In addition, general and administrative costs increased $4,868,000 due to higher incentive compensation and stock based compensation expense.

Foreign currency translation had a $238,000 unfavorable impact on general and administrative expenses.

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As a percentage of consolidated net sales, research and development expenses were 1.7% and 1.9% in fiscal 2022 and 2021.

The increase in research and development expenses is primarily due to $525,000 in current year severance costs associated with a research and development facility closure and $307,000 in higher incentive compensation expense in fiscal 2021.

The increase in research and development expenses is primarily due to $1,722,000 of acquisition and acquisition related costs and $456,000 in higher incentive compensation and stock based compensation expense.

Foreign currency translation had a $15,000 unfavorable impact on research and development expenses.

Amortization of intangibles remained relatively consistent at $12,623,000 and $12,942,000 in fiscal 2021 and 2020, respectively, with the decrease related to certain intangible assets that are now fully amortized.

Interest and debt expense was $12,081,000 and $14,234,000 in fiscal 2021 and 2020, respectively, and primarily related to a decrease in interest and debt expense on the Company's Term Loan due to lower average borrowings outstanding during the fiscal 2021 period.

Amortization of intangibles were $25,283,000 and $12,623,000 in fiscal 2022 and 2021, respectively, with the increase related to new intangible assets recorded from the Dorner and Garvey acquisition.

Interest and debt expense was $20,126,000 and $12,081,000 in fiscal 2022 and 2021, respectively.

The increase is related to higher interest rates as well as higher average borrowing outstanding as a result of the Dorner and Garvey acquisitions.

The Company incurred $14,803,000 in Cost of debt refinancing in fiscal 2022 as a result of the Dorner acquisition and related refinancing as described in Note 12 to our March 31, 2022 consolidated financial statements.

There were no similar expenses incurred in fiscal 2021.

Investment income of $46,000 and $1,693,000, in fiscal 2022 and 2021, respectively, related to earnings on marketable securities held in the Company’s wholly owned captive insurance subsidiary and the Company's equity method investment in EMC, described in Note 7 to our March 31, 2022 consolidated financial statements.

Foreign currency exchange resulted in a loss of $941,000 and gain of $1,514,000 in fiscal 2021 and 2020, respectively, as a result of foreign currency volatility related to foreign currency denominated sales and purchases and intercompany debt.

Other expense was $20,850,000 in fiscal 2021 and $839,000 in fiscal 2020.

The increase primarily related to a $19,038,000 settlement charge as a result of the termination of one of the Company's U.S.

pension plans, as described in Note 13 to our March 31, 2021 consolidated financial statements.

Foreign currency exchange resulted in a loss of $1,574,000 and $941,000 in fiscal 2022 and 2021, respectively, as a result of foreign currency volatility related to foreign currency denominated sales and purchases and intercompany debt.

Other income was $1,122,000 in fiscal 2022 and other expense was $20,850,000 in fiscal 2021.

The decrease in expense is primarily related to a $19,038,000 settlement charge as a result of the termination of one of the Company's U.S.

pension plans in fiscal 2021 as described in Note 13 to our March 31, 2022 consolidated financial statements.

Income tax expense as a percentage of income from continuing operations before income tax expense was 22.9% and 9.6% in fiscal 2022 and 2021, respectively.

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statutory rate of 21% due to varying effective tax rates at the Company's foreign subsidiaries and the jurisdictional mix of income for these subsidiaries.

In fiscal 2021 the tax rate was primarily reduced by 6.9 percentage points due to federal tax credits including research and development credits.

Fiscal 2020 Compared to 2019

Fiscal 2020 sales were $809,162,000, a decrease of 7.7%, or $67,120,000 compared with fiscal 2019 sales of $876,282,000.

Sales for the year were negatively impacted by $34,195,000 in sales in the previous fiscal year from sold businesses and $32,951,000 in decreased sales volume, offset by $13,169,000 in price increases.

Unfavorable foreign currency translation decreased sales by $13,143,000.

Gross profit was $283,186,000 and $304,997,000 or 35.0% and 34.8% of net sales in fiscal 2020 and 2019, respectively.

The fiscal 2020 decrease in gross profit of $21,811,000 or 7.2% is the result of $14,069,000 in decreased volume, $7,053,000 in gross profit from sold businesses, $3,461,000 in decreased productivity and unfavorable manufacturing costs, $1,327,000 in costs incurred to consolidate the Salem and Lisbon Ohio facilities, $778,000 in increased tariffs, $751,000 in increased severance costs, and $622,000 in increased product liability costs.

These decreases were offset by $10,338,000 of price increases net of material inflation and $382,000 received from insurance settlement.

The translation of foreign currencies had a $4,470,000 unfavorable impact on gross profit for the year ended March 31, 2020.

Selling expenses were $91,054,000 and $97,925,000 or 11.3% and 11.2% of net sales in fiscal years 2020 and 2019.

Selling expenses from sold businesses decreased selling expenses by $1,468,000 in fiscal 2020.

In addition, we had $804,000 in lower advertising expenses, $550,000 in reduced U.S.

warehouse rent expense, $331,000 lower incentive compensation, and $453,000 in costs incurred to consolidate the Salem and Lisbon Ohio facilities classified as selling expense.

These decreases were offset by $299,000 in fiscal 2020 severance costs.

Additionally, foreign currency translation had a $1,765,000 favorable impact on selling expenses.

The remainder of the decrease is due to lower sales volume.

General and administrative expenses were $77,880,000 and $83,567,000 or 9.6% and 9.5% of net sales in fiscal 2020 and 2019, respectively.

The fiscal 2020 decrease in general and administrative expenses was primarily due to $7,540,000 of lower incentive compensation and stock compensation expense including $1,981,000 in stock compensation expense that was reversed in the third quarter of fiscal 2020 for shares that were forfeited upon our Chief Executive Officer's resignation, $1,564,000 from sold businesses, and a $697,000 net reduction in legal costs related to an insurance recovery legal action.

The decrease in general and administrative expense was partially offset by $1,528,000 in increased bed debt expenses, $1,455,000 in costs incurred to close a plant in the Asia Pacific region and reorganize the business, $635,000 in tax professional services fees primarily related to a legal entity restructuring, $624,000 in increased medical and benefit expenses, $436,000 of occupancy costs for our center of excellence in North Carolina, and $352,000 in increased environmental costs.

Foreign currency translation had a $1,036,000 favorable impact on general and administrative expenses.

Research and development expenses were $11,310,000 and $13,491,000 in fiscal 2020 and 2019, respectively.

As a percentage of consolidated net sales, research and development expenses were 1.4% and 1.5% in fiscal 2020 and 2019.

The reduction in research and development expenses is largely due to lower professional services and other expenses.

$277,000 of the decrease in research and development expenses is from sold businesses.

A net loss on sales of businesses in the amount of $176,000 was recorded as a result of a final working capital adjustment in the year ended March 31, 2020 from businesses that were sold in fiscal 2019.

Amortization of intangibles remained relatively consistent at $12,942,000 and $14,900,000 in fiscal 2020 and 2019, respectively.

The decrease is primarily related to foreign currency translation.

Interest and debt expense was $14,234,000 and $17,144,000 in fiscal 2020 and 2019, respectively, and primarily related to a decrease in interest and debt expense on the Company's Term Loan due to lower average borrowings outstanding during the fiscal 2020 period.

Investment income of $891,000 and $727,000, in fiscal 2020 and 2019, respectively, related to earnings on marketable securities held in the Company’s wholly owned captive insurance subsidiary and the Company's equity method investment in EMC, described in Note 7 to our March 31, 2021 consolidated financial statements.

Foreign currency exchange resulted in a gain of $1,514,000 and loss of $843,000 in fiscal 2020 and 2019, respectively, as a result of foreign currency volatility related to foreign currency denominated sales and purchases and intercompany debt.

Other expense was $839,000 in fiscal 2020 and other income was $716,000 in fiscal 2019.

This includes components of pension expense (all except service costs, described in Note 13 to our March 31, 2021 consolidated financial statements) and various non-operating income and expense related activities.

Income tax expense as a percentage of income from continuing operations before income tax expense was 22.7% and 19.5% in fiscal 2020 and 2019, respectively.

These percentages vary from the U.S.

statutory rate of 21% primarily due to varying effective tax rates at the Company's foreign subsidiaries, and the jurisdictional mix of taxable income for these subsidiaries.

In fiscal 2021 the tax rate was primarily reduced by 6.9 percentage points primarily due to federal tax credits including research and development tax credits.

LIQUIDITY AND CAPITAL RESOURCES

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Net cash provided by operating activities was $48,881,000 and $98,890,000 in fiscal 2022, and 2021, respectively.

In fiscal 2021, net income of $9,106,000 and non-cash adjustments to net income of $52,370,000 were the largest contributors to cash provided by operating activities.

In addition, cash increased as a result of better working capital performance including a decrease in inventory of $20,659,000, a decrease in trade accounts receivable of $21,472,000, and an increase in trade accounts payable of $10,343,000.

The increase in cash was partially offset by a decrease in accrued expenses and non-current liabilities of $10,806,000.

The decrease in accrued expenses and non-current liabilities primarily consists of the fiscal 2020 annual incentive plan payments offset by fiscal 2021 incentive plan accruals, $1,316,000 in pension plan contributions net of $3,790,000 of plan assets returned to the Company on the termination of one of its U.S.

pension plans, and $8,909,000 in cash paid for amounts included in the measurement of operating lease liabilities.

In fiscal 2020, net income of $59,672,000 and non-cash adjustments to net income of $51,188,000 contributed the most to cash provided by operating activities as well as a decrease in inventory of $15,752,000 and an increase in trade accounts payable of $8,110,000.

The increase in cash was partially offset by a decrease in accrued expenses and non-current liabilities of 27,693,000.

The net decrease in non-current liabilities is largely due to pension plan contributions of $10,967,000.

In fiscal 2022, net income of $29,660,000 and non-cash adjustments to net income of $76,266,000 were the largest contributors.

Of the non-cash adjustments, $41,924,000 was Depreciation and amortization and $14,803,000 was Cost of debt refinancing as a result of the Dorner acquisition.

Net working capital increases reduced operating cash flows by $45,859,000, which included an increase of $40,201,000 in inventories as the Company increased inventory due to current supply chain constraints and an increase in trade accounts receivable of $18,988,000 attributable to strong fourth quarter sales.

This was partially offset by an increase in trade accounts payable of $12,681,000.

In addition non-current liabilities decreased by $11,211,000.

The decrease in non-current liabilities primarily consists of $9,059,000 in cash paid for amounts included in the measurement of operating lease liabilities for fiscal 2022.

Cash flow from investing activities

Net cash (used) provided by investing activities was $(5,548,000), $(9,962,000), and $2,486,000 in fiscal 2021, 2020, and 2019, respectively.

In fiscal 2021, the most significant use of cash in investing activities was $12,300,000 in capital expenditures.

In fiscal 2020, the most significant use of cash provided by investing activities was $9,432,000 in capital expenditures.

Net cash used for investing activities was $554,311,000 and $5,548,000 in fiscal 2022 and 2021, respectively.

In fiscal 2022, the most significant use of cash in investing activities was $539,778,000 to purchase Dorner and Garvey, net of cash acquired, as well as $13,104,000 in capital expenditures.

Cash flow from by financing activities

Net cash used by financing activities was $10,189,000, $51,551,000, and $67,778,000 in fiscal 2021, 2020, and 2019, respectively.

In fiscal 2021, the most significant uses of cash were $4,450,000 in repayments on our Term Loan and dividends paid in the amount $5,733,000, offset by $820,000 in net inflows from stock related transactions, which includes proceeds of $1,973,000 from stock options exercised.

The Company drew $25,000,000 on the Revolver during the three months ended June 30, 2020 and subsequently repaid the amount in full during the three months ended December 31, 2020 which resulted in no net impact on cash used by financing activities in fiscal 2021.

In fiscal 2020, the most significant uses of cash were $51,113,000 in repayments on our Term Loan and dividends paid in the amount of $5,670,000, offset by $5,232,000 in net inflows from stock related transactions, which included proceeds of $6,000,000 from stock options exercised.

We believe that our cash on hand, cash flows, and borrowing capacity under our New Revolving Credit Facility will be sufficient to fund our ongoing operations and budgeted capital expenditures for at least the next twelve months.

Net cash provided by (used for) financing activities was $420,700,000 and $(10,189,000) in fiscal 2022 and 2021, respectively.

In fiscal 2022, the most significant sources of cash were $725,000,000 in gross proceeds from the issuance of long term debt and $207,000,000 in gross proceeds from an equity offering, which were used to fund the Dorner and Garvey acquisitions.

These sources of cash were offset by $477,846,000 in repayments of debt, $26,184,000 in fees related to the debt and equity offering, and dividends paid in the amount of $6,562,000.

As noted in Note 8 of the financial statements, during the second quarter of fiscal 2022, the Company modified its cross currency swap and interest rate swap.

As such, the associated cash flows from hedging activities are classified as financing activities in the Statement of Cash Flows, which resulted in a net cash outflow of $789,000.

We believe that our cash on hand, cash flows, and borrowing capacity under our new First Lien Facility will be sufficient to fund our ongoing operations and debt obligations, and capital expenditures for at least the next twelve months.

This belief is dependent upon successful execution of our current business plan and effective working capital utilization.

No material restriction exists in accessing cash held by our non-U.S.

No material restrictions exist in accessing cash held by our non-U.S.

subsidiaries.

Additionally we expect to meet our U.S.

funding needs without repatriating non-U.S.

cash and incurring incremental U.S.

As of March 31, 2022, $75,284,000 of cash and cash equivalents were held by foreign subsidiaries.

Subsequent to March 31, 2021, the Company's cash balance decreased by approximately $120,000,000 to fund the Dorner acquisition, however, the Company still believes cash on hand is sufficient to fund ongoing operations and budgeted capital expenditures for the next 12 months.

Debt - Key Terms as of March 31, 2021

On January 31, 2017 the Company entered into a Credit Agreement ("Credit Agreement") and $545,000,000 of debt facilities ("Facilities") in connection with the STAHL acquisition.

The Facilities consist of a Revolving Facility ("Revolver") in the amount of $100,000,000 and a $445,000,000 1st Lien Term Loan ("Term Loan").

The Facilities consist of a Revolving Facility ("Revolver") in the

amount of $100,000,000 and a $445,000,000 1st Lien Term Loan ("Term Loan").

The Term Loan has a seven-year term maturing in 2024.

On February 26, 2018, the Company amended the Credit Agreement (known as the "First Amended Credit Agreement").

The First Amended Credit Agreement has the same terms mentioned above except for a reduction in interest rates.

The applicable rate for the repriced term loan was reduced from 3.00% to 2.50%.

The Company accounted for the First Amended Credit Agreement as a debt modification, therefore, debt repricing fees incurred in fiscal 2018 were expensed as General and Administrative expenses and the deferred financing fees incurred as part of the Credit Agreement (discussed below) remain unchanged.

On August 26, 2020, the Company entered into a Second Amendment (known as the "Second Amended Credit Agreement") to the Credit Agreement (as amended by the First Amended Credit Agreement).

The First Amended Credit Agreement extends the $100,000,000 secured Revolver which was originally set to expire on January 31, 2022 to August 25, 2023.

At March 31, 2021 the Company has not drawn from the Revolver.

The key terms of the agreement are as follows:

An aggregate $445,000,000 1st Lien Term Loan which requires quarterly principal amortization of 0.25% with the remaining principal due at maturity date.

In addition, if the Company has Excess Cash Flow ("ECF") as defined in the Credit Agreement, the ECF Percentage of the Excess Cash Flow for such fiscal year minus optional prepayment of the Loans (except prepayments of Revolving Loans that are not accompanied by a corresponding permanent reduction of Revolving Commitments) pursuant to Section 2.10(a) of the Credit Agreement other than to the extent that any such prepayment is funded with the proceeds of Funded Debt, shall be applied toward the prepayment of the Term Loan.

The ECF Percentage is defined as 50% stepping down to 25% or 0% based on the Secured Leverage Ratio as of the last day of the fiscal year.

On August 26, 2020, the Company entered into a Second Amendment to the Credit Agreement (as amended by the First Amended Credit Agreement, dated as of February 26, 2018).

The Second Amended Credit Agreement extended the $100,000,000 secured Revolver which was originally set to expire on January 31, 2022 to August 25, 2023.

As discussed in Note 3, the Company completed its acquisition of Dorner on April 7, 2021 and entered into a $750,000,000 First Lien Facility with JPMorgan Chase Bank, PNC Capital Markets LLC, and Wells Fargo Securities LLC.

The First Lien Facilities consist of a Revolving Facility in an aggregate amount of $100,000,000 and a $650,000,000 Bridge Facility.

Proceeds from the Bridge Facility were used, among other things, to finance the purchase price for the Dorner acquisition, pay related fees, expenses and transaction costs, and refinance the Company's borrowings under its prior Term Loan and Revolver.

In addition to the debt borrowing described above, the Company commenced and completed an underwritten public offering of 4,312,500 shares of its common stock at a price of $48.00 per share for total gross proceeds of $207,000,000.

The Company used all of the net proceeds from the equity offering to repay part of its outstanding borrowings under its Bridge Facility.

The equity offering closed on May 4, 2021.

Following the repayment of outstanding borrowings under the Bridge Facility, the Bridge Facility was refinanced with a syndicated Term Loan B facility on May 14, 2021.

The key terms of the Term Loan B facility are as follows:

1) Term Loan B:

An aggregate $450,000,000 Term Loan B facility, which requires quarterly principal amortization of 0.25% with the remaining principal due at the maturity date.

In addition, if the Company has Excess Cash Flow (ECF) as defined in the Credit Agreement for the First Lien Facility (the “Credit Agreement”), the ECF Percentage of the Excess Cash Flow for each fiscal year minus optional prepayments of the Loans (except prepayments of Revolving Loans that are not accompanied by a corresponding permanent reduction of Revolving Commitments) pursuant to Section 2.10(a) of the Credit Agreement other than to the extent that any such prepayment is funded with the proceeds of Funded Debt, shall be applied toward the prepayment of the Term Loan B facility.

The ECF Percentage is defined as 50% stepping down to 25% or 0% based on the achievement of specified Secured Leverage Ratios as of the last day of such fiscal year.

Further, the Company may draw additional Incremental Facilities (referred to as an "Accordion") by executing and delivering to JPMorgan Chase Bank, N.A.

an Increased Facility Activation Notice specifying the amount of such increase requested.

Lenders shall have no obligation to participate in any increase unless they agree to do so in their sole discretion.

An aggregate $100,000,000 secured revolving facility which includes sublimits for the issuance of standby letters of credit, swingline loans and multi-currency borrowings in certain specified foreign currencies.

3) Fees and Interest Rates:

Commitment fees and interest rates are determined on the basis of either a Eurocurrency rate or a Base rate plus an applicable margin based upon the Company's Total Leverage Ratio (as defined in the Credit Agreement).

Commitment fees and interest rates are determined on the basis of either a Eurocurrency rate or a Base rate plus an applicable margin, which is based upon the Company's Total Leverage Ratio (as defined in the Credit Agreement) in the case of Revolver loans.

4) Prepayments:

Provisions permitting a Borrower to voluntarily prepay either the Term Loan or Revolver in whole or in part at any time, and provisions requiring certain mandatory prepayments of the Term Loan or Revolver on the occurrence of certain events which will permanently reduce the commitments under the Credit Agreement, each without premium or penalty, subject to reimbursement of certain costs of the Lenders.

A prepayment premium of 1% of the principal amount of the First Lien Term Loans is required if the prepayment is associated with a Repricing Transaction and it were to occur within the first twelve months.

Provisions containing covenants required of the Corporation and its subsidiaries including various affirmative and negative financial and operational covenants.

The key financial covenant is triggered only on any date when any Extension of Credit under the Revolving Facility is outstanding (excluding any Letters of Credit) (the “Covenant Trigger”), and permits the Total Leverage Ratio for the Reference Period ended on such date to not exceed (i) 4.50:1.00 as of any date of determination prior to December 31, 2017, (ii) 4.00:1.00 as of any date of determination on December 31, 2017 and thereafter but prior to December 31, 2018, (iii) 3.50:1.00 as of any date of determination on December 31, 2018 and thereafter but prior to December 31, 2019 and (iv) 3.00:1.00 as of any date of determination on December 31, 2019 and thereafter.

As there is no amount drawn on the Revolver as of March 31, 2021 the

requirement to comply with the covenant is not triggered.

Had we been required to determine the covenant ratio we would have been in compliance with the covenant provisions as of March 31, 2021 and 2020.

The Facility is secured by all U.S.

inventory, receivables, equipment, real property, certain subsidiary stock (limited to 65% of non-U.S.

subsidiaries) and intellectual property.

The Credit Agreement allows the declaration of dividends, but limits our ability to pay dividends.

As discussed in Note 3, the Company completed its acquisition of Dorner on April 7, 2021 and entered into a $750,000,000 credit facility ("First Lien Facilities") with JPMorgan Chase Bank, N.A.

("JPMorgan Chase Bank"), PNC Capital Markets LLC, and Wells Fargo Securities LLC.

The First Lien Facilities consist of a Revolving Facility (the “New Revolving Credit Facility”) in an aggregate amount of $100,000,000 and a $650,000,000 First Lien Term Facility.

Proceeds from the First Lien Term Facility was used, among other things, to finance the purchase price for the Dorner acquisition, pay related fees, expenses and transaction costs, and refinance the Company's borrowings under its prior Term Loan and Revolver.

Refer to Note 3 to our March 31, 2021 consolidated financial statements for key terms of the First Lien Facilities, which went into effect during fiscal 2022.

The outstanding balance of the Term Loan was $254,900,000 and $259,350,000 as of March 31, 2021 and 2020, respectively.

The Company made $4,450,000 of principal payment on the Term Loan during fiscal 2021 and $51,113,000 of principal payment on the Term Loan during fiscal 2020.

The Company is obligated to make $4,450,000 of principal payments over the next 12 months.

As previously discussed, in response to COVID-19 the Company is seeking to take all appropriate measures to protect the cash flow and liquidity of the Company.

As such, only the required principal amount has been recorded within the current portion of long-term debt on the Company's Consolidated Balance Sheet with the remaining balance recorded as long-term debt.

There was $0 outstanding on the Revolving Credit Facility and $17,302,000 outstanding letters of credit as of March 31, 2021.

Provisions permitting a Borrower to voluntarily prepay either the Term Loan B facility or Revolver in whole or in part at any time, and provisions requiring certain mandatory prepayments of the Term Loan B facility or Revolver on the occurrence of certain events which will permanently reduce the commitments under the Credit Agreement, each without premium or penalty, subject to reimbursement of certain costs of the Lenders.

5) Covenants:

Provisions containing covenants required of the Company and its subsidiaries including various affirmative and negative financial and operational covenants.

The key financial covenant is triggered only on any date when any Extension of Credit under the New Revolving Credit Facility is outstanding (excluding any Letters of Credit) (the “Covenant Trigger”), and prohibits the Total Leverage Ratio for the Reference Period ended on such date from exceeding (i) 6.75:1.00 as of any date of determination prior to June 30, 2021, (ii) 5.50:1.00 as of any date of determination on June 30, 2021 and thereafter but prior to June 30, 2022, (iii) 4.50:1.00 as of any date of determination on June 30, 2022 and thereafter but prior to June 30, 2023 and (iv) 3.50:1.00 as of any date of determination on June 30, 2023 and thereafter.

6) Collateral:

Obligations under the First Lien Facilities are secured by liens on substantially all assets of the Company and its material domestic subsidiaries.

In fiscal 2022, the Company incurred $14,803,000 in debt extinguishment costs of which $5,946,000 relates to the Company's prior Term Loan, $326,000 relates to the Company's prior Revolver, and $8,531,000 relates to fees paid on the portion of the First Lien Facilities that were associated with the Bridge Facility, all of which were incurred in the first quarter of fiscal 2022.

These costs are classified as Cost of debt refinancing in the Condensed Consolidated Statements of Operations.

Further, in the first quarter of fiscal 2022, the Company recorded $5,432,000 in deferred financing costs on the First Lien Term Facility, which will be amortized over seven years.

The Company recorded $4,027,000 in deferred financings costs on the New Revolving Credit Facility, of which $3,050,000 is related to the New Revolving Credit Facility and $977,000 is carried over from the Company's prior Revolver as certain Revolver lenders increased their borrowing capacity.

These balances will be amortized over five years and are classified in Other assets since no funds were drawn on the New Revolving Credit Facility.

Also discussed in Note 3, the Company completed its acquisition of Garvey on November 30, 2021 and borrowed additional funds in accordance with the Accordion feature under its existing Term Loan B to increase the principal amount of the Term Loan B facility by $75,000,000.

Proceeds from the Accordion were used, among other things, to finance the purchase price for the Garvey acquisition, pay related fees, expenses, and transaction costs.

No material amendment to the terms of the Term Loan B facility or the First Lien Facility was necessary for the Company to exercise this Accordion feature.

In the third quarter of fiscal 2022, the Company recorded $892,000 in deferred financing costs on the Accordion, which will be amortized over the remaining life of the Term Loan B.

The outstanding principal balance of the Term Loan B facility was $502,560,000 as of March 31, 2022, which includes $75,000,000 in principal balance from the Accordion exercised in the third quarter of fiscal 2022 and the outstanding balance of the Term Loan was $254,900,000 as of March 31, 2021.

The Company made $22,440,000 of principal payment on the Term Loan B during fiscal 2022 and $4,450,000 of principal payment on the Term Loan during fiscal 2021.

The Company is obligated to make $5,260,000 of principal payments on the Term Loan B facility over the next 12 months plus applicable ECF payments, if required, however, plans to pay down approximately $40,000,000 in principal payments in total during such 12 month period.

This amount has been recorded within the current portion of long term debt on the Company's Condensed Consolidated Balance Sheet with the remaining balance recorded as long term debt.

There were no outstanding borrowings and $17,151,000 outstanding letters of credit issued against the New Revolving Credit Facility as of March 31, 2022.

The outstanding letters of credit at March 31, 2022 consisted of $849,000 in commercial letters of credit and $16,302,000 of standby letters of credit.

The gross balance of deferred financing costs on the term loan was $14,690,000 as of March 31, 2021 and 2020.

The gross balance of deferred financing costs on the Term Loan B facility was $6,323,000, which includes $892,000 from the Accordion exercise, as of March 31, 2022, and $14,690,000 on the prior Term Loan as of March 31, 2021, respectively.

The accumulated amortization balances were $898,000 and $8,744,000 as of March 31, 2022 and 2021, respectively.

The gross balance of deferred financing costs associated with the Revolving Credit Facility is included in Other assets is $3,615,000 as of March 31, 2021 and $2,789,000 as of March 31, 2020.

The gross balance of deferred financing costs associated with the New Revolving Credit Facility was $4,027,000 as of March 31, 2022 and the prior Revolver was $3,615,000 as of March 31, 2021, which are included in Other assets on the Condensed Consolidated Balance Sheet.

The accumulated amortization balance is $805,000 and $2,313,000 as of March 31, 2022 and March 31, 2021, respectively.

These balances are classified in Other assets since no funds were drawn on the Revolving Credit Facility as of March 31, 2021 and March 31, 2020.

In connection with Dorner acquisition, the Company recorded a finance lease for a manufacturing facility in Hartland, WI under a 23 year lease agreement which terminates in 2035.

The outstanding balance on the finance lease obligation is $14,084,000 as of March 31, 2022 of which $544,000 has been recorded within the Current portion of long term debt and the remaining balance recorded within Term loan and finance lease obligations on the Company's Condensed Consolidated Balance Sheet.

See Note 18, Leases , for further details.

Lines of Credit and Loans

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In addition, unsecured lines of $12,503,000 were available for bank guarantees issued in the normal course of business of which $9,135,000 was utilized.

Debt - Key Terms subsequent to March 31, 2021

As discussed in Note 3 to our March 31, 2021 consolidated financial statements, on April 7, 2021, the Company completed its acquisition of Dorner for $485,000,000 on a cash-free, debt-free basis with a working capital adjustment.

To finance the Dorner acquisition, on April 7, 2021 the Company entered into a $750,000,000 credit facility ("First Lien Facilities") with JPMorgan Chase Bank, N.A.

("JPMorgan Chase Bank"), PNC Capital Markets LLC, and Wells Fargo Securities LLC.

The First Lien Facilities consist of a Revolving Facility (the “New Revolving Credit Facility”) in an aggregate amount of $100,000,000 and a $650,000,000 First Lien Term Facility ("Bridge Facility").

The key terms of the First Lien Facility are as follows:

1) Bridge Facility:

An aggregate $650,000,000 Bridge Facility which requires quarterly principal amortization of 0.25% with the remaining principal due at maturity date.

In addition, if the Company has Excess Cash Flow (ECF) as defined in the Credit Agreement, the ECF Percentage of the Excess Cash Flow for each fiscal year minus optional prepayments of the Loans (except

prepayments of Revolving Loans that are not accompanied by a corresponding permanent reduction of Revolving Commitments) pursuant to Section 2.10(a) of the Credit Agreement other than to the extent that any such prepayment is funded with the proceeds of Funded Debt, shall be applied toward the prepayment of the Bridge Facility.

The ECF Percentage is defined as 50% stepping down to 25% or 0% based on the achievement of specified Secured Leverage Ratios as of the last day of such fiscal year.

3) Fees and Interest Rates:

4) Prepayments:

Provisions permitting a Borrower to voluntarily prepay either the Bridge Facility or Revolver in whole or in part at any time, and provisions requiring certain mandatory prepayments of the Bridge Facility or Revolver on the occurrence of certain events which will permanently reduce the commitments under the Credit Agreement, each without premium or penalty, subject to reimbursement of certain costs of the Lenders.

A prepayment premium of 1% of the principal amount of the First Lien Term Facility is required if the prepayment is associated with a Repricing Transaction and it were to occur within the first six months following the closing date.

5) Covenants:

Provisions containing covenants required of the Corporation and its subsidiaries including various affirmative and negative financial and operational covenants.

The key financial covenant is triggered only on any date when any Extension of Credit under the Revolving Facility is outstanding (excluding any Letters of Credit) (the “Covenant Trigger”), and prohibits the Total Leverage Ratio for the Reference Period ended on such date from exceeding (i) 6.75:1.00 as of any date of determination prior to June 30, 2021, (ii) 5.75:1.00 as of any date of determination on June 30, 2021 and thereafter but prior to June 30, 2022, (iii) 4.75:1.00 as of any date of determination on June 30, 2022 and thereafter but prior to June 30, 2023 and (iv)

3.50:1.00 as of any date of determination on June 30, 2023 and thereafter.

6) Collateral:

Obligations under the First Lien Facilities are secured by liens on substantially all assets of the Company and its material domestic subsidiaries.

Debt and equity issuance costs were not material in fiscal 2021.

In the first quarter of fiscal 2022, the Company expects to incur $6,272,000 in debt extinguishment costs, of which $5,946,000 relates to the Company's prior Term Loan and $326,000 relates to the Company's prior Revolver.

These costs will be classified as Cost of debt refinancing in the Consolidated Statements of Operations.

Further, in fiscal 2022 the Company expects to record $5,432,000 in deferred financing costs on the First Lien Term Facility, which will be amortized over seven years.

The Company expects to record $4,027,000 in deferred financings costs on the New Revolver, of which $3,050,000 is related to the new Revolver and $977,000 is carried over from the Company's prior Revolver as certain Revolver lenders increased their borrowing capacity.

These balances will be amortized over five years and classified in Other assets since no funds are expected to be drawn on the New Revolver in the first quarter of fiscal 2022.

In addition to the debt borrowing described above, the Company commenced an underwritten public offering of 4,312,500 shares of its common stock at a price of $48.00 per share for total gross proceeds of $207,000,000.

The Company used all of the net proceeds from the equity offering to repay in part outstanding borrowings under its Bridge Facility.

The equity offering closed on May 4, 2021.

Following the repayment, the Bridge Facility was refinanced with a Term Loan B facility.

The terms of the Term Loan B facility are similar to the terms for the Bridge Facility with the exception of the limits related to the financial covenants which are triggered only on any date when any Extension of Credit under the Revolving Facility is outstanding.

The Term Loan B prohibits the Total Leverage Ratio on such date from exceeding (i) 6.75:1.00 as of any date of determination prior to June 30, 2021, (ii) 5.50:1.00 as of any date of determination on June 30, 2021 and thereafter but prior to June 30, 2022, (iii) 4.50:1.00 as of any date of determination on June 30, 2022 and thereafter but prior to June 30, 2023 and (iv) 3.50:1.00 as of any date of determination on June 30, 2023 and thereafter.

Fees paid on the portion of the First Lien Facilities that were associated with the Bridge Facility are expected to be expensed as part of Cost of debt refinancing in the Consolidated Statements of Operations in the amount of $8,531,000 in the first quarter of fiscal 2022.

CONTRACTUAL OBLIGATIONS

The following table reflects a summary of our expected future cash outflows associated with contractual obligations in effect as of March 31, 2021:

Fiscal 2024 Fiscal

Fiscal 2026 More

Long-term debt obligations (a) $ 255.0 $ 4.5 $ 250.5 $ — $ —

Interest obligations (b) 22.7 9.1 13.6 — —

Letter of credit obligations 17.3 15.2 2.1 — —

Bank guarantees 12.6 12.6 — — —

Operating lease obligations (c) 39.8 9.0 13.2 8.3 9.3

Pension funding (d) 233.9 23.8 47.9 47.5 114.7

Total $ 581.3 $ 74.2 $ 327.3 $ 55.8 $ 124.0

(a) As described above, subsequent to March 31, 2021, the Company refinanced its Term Loan and Revolver in connection with its purchase of Dorner.

The new required annual principal payments (taking into account the completion of the Company’s underwritten public common stock offering and associated use of proceeds for the repayment of amounts outstanding under the First Lien Term Facilities) will be $4,500,000 plus a required excess cash sweep on the $450,000,000 Term Loan B facility.

(b) Estimated for our Term Loan and Revolving Credit Facility and interest rate swaps as described in Note 10 and Note 12 to our consolidated financial statements.

Calculated using a Eurocurrency rate of 1.00% plus an applicable margin of 2.50%.

(d) As described in Note 13 to consolidated financial statements.

We have no additional off-balance sheet obligations that are not reflected above.

CAPITAL EXPENDITURES

In addition to keeping our current equipment and plants properly maintained, we are committed to replacing, enhancing, and upgrading our property, plant and equipment to support new product development, improve productivity and customer responsiveness, reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements, and enhance safety.

In addition to keeping our current equipment and plants properly maintained, we are committed to replacing, enhancing and upgrading our property, plant and equipment to support new product development, improve productivity and customer responsiveness, reduce production costs, increase flexibility to respond effectively to market fluctuations and changes, meet environmental requirements, enhance safety and promote ergonomically correct work stations.

Our capital expenditures for fiscal 2022 and 2021 were $13,104,000 and $12,300,000, respectively.

Excluded from fiscal 2021 capital expenditures is $730,000, $365,000, and $227,000 in property, plant and equipment purchases included in accounts payable at March 31, 2021, 2020, and 2019, respectively.

We expect capital expenditure spending in fiscal 2022 to range from $20,000,000 to $25,000,000, of which $3,000,000 to $4,000,000 is attributable to Dorner.

Excluded from fiscal 2022 capital expenditures is

$329,000 and $730,000, in property, plant and equipment purchases included in accounts payable at March 31, 2022 and 2021, respectively.

We expect capital expenditure spending in fiscal 2023 to range from $25,000,000 to $30,000,000.

INFLATION AND OTHER MARKET CONDITIONS

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economies including those of Europe, Canada, Mexico, South America, and Asia-Pacific.

We do not believe that general inflation has had a material effect on our results of operations over the periods presented primarily due to overall low inflation levels over such periods and our ability to generally pass on rising costs through annual price increases.

However, increases in U.S.

employee benefits costs such as health insurance and workers compensation insurance have exceeded general inflation levels.

In the future, we may be further affected by inflation that we may not be able to pass on as price increases.

With changes in worldwide demand for steel and fluctuating scrap steel prices over the past several years, we experienced fluctuations in our costs that we have reflected as price increases to our customers.

We believe we have been successful in instituting price increases to pass on these material cost increases.

We will continue to monitor our costs and reevaluate our pricing policies.

We do not believe that general inflation has had a material effect on our results of operations over the periods presented despite rising inflation due to our ability to pass on rising costs through price increases.

We are currently experiencing higher raw material, freight, and logistics costs than we have seen in recent years, which we have been able to recover with pricing actions.

In the future, we may not be able to pass on these cost increases to our customers.

SEASONALITY AND QUARTERLY RESULTS

Our quarterly results may be materially affected by the timing of large customer orders, periods of high vacation and holiday concentrations, restructuring charges, and other costs attributable to plan closures as well as divestitures and acquisitions.

Therefore, our operating results for any particular fiscal quarter are not necessarily indicative of results for any subsequent fiscal quarter or for the full fiscal year.

Quarterly results may be materially affected by the timing of large customer orders, periods of high vacation and holiday concentrations, legal settlements, gains or losses in our portfolio of marketable securities, restructuring charges, favorable or unfavorable foreign currency translation, divestitures and acquisitions.

Therefore, the operating results for any particular fiscal quarter are not necessarily indicative of results for any subsequent fiscal quarter or for the full fiscal year.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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We also aggregate components that have similar economic characteristics into single reporting units (for example, similar products and / or services, similar long-term financial results, product processes, classes of customers, or in circumstances where the components share assets or other resources and have other economic interdependencies).

We have four reporting units, only two of which have goodwill.

The Duff-Norton and Rest of Products reporting units have goodwill totaling $9,699,000, and $321,477,000, respectively, at March 31, 2021.

We have three reporting units, Duff-Norton, Rest of Products and Precision Conveyance, and have goodwill totaling $9,699,000, $310,793,000, and $328,357,000, respectively, at March 31, 2022.

The Precision Conveyance group is new in fiscal 2022 with the acquisitions of Dorner and Garvey (refer to Note 3).

Annual Goodwill Impairment Test

When we evaluate the potential for goodwill impairment, we assess a range of qualitative factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors such as strategy, and changes in key personnel and overall financial performance.

overall financial performance.

If, after completing this assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative impairment test.

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Accordingly, we did not perform the quantitative goodwill impairment test for any of our reporting units during fiscal 2022.

We further test our indefinite-lived intangible asset balance of $47,857,000 consisting of trademarks on our acquisitions on an annual basis for impairment.

We further test our indefinite-lived intangible asset balance of $46,721,000 consisting of trademarks for acquisitions prior to fiscal 2022.

Similar to goodwill, we first assess various qualitative factors in the analysis.

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We performed the qualitative assessment as of February 28, 2022 and determined that it was not more likely than not that the fair value of each of our indefinite-lived intangible assets was less than that its applicable carrying value.

Purchase Price Allocations for Business Combinations.

During the fiscal year ended March 31, 2022, we completed two business combination for a total purchase price of $548,743,000.

Under purchase accounting, we recorded assets and liabilities at fair value as of the acquisition dates.

We identified and assigned value to trademarks and trade names, customer relationships, favorable supply agreements, backlog, and technology.

We estimated the useful lives over which these intangible assets would be amortized.

Valuations of these assets were performed largely using discounted cash flow models and estimates of replacement cost.

These valuations support the conclusion that identifiable intangible assets had a preliminary value of $211,350,000.

The resulting goodwill was $328,357,000.

Assigning value to intangible assets requires estimates used in projecting relevant future cash flows and estimates of replacement costs, in addition to estimating useful lives of such assets.

Further estimates include an attrition rate for customer relationships, royalty rates for technology, trademarks, and patents, and a weighted average cost of capital assumption.

Effects of New Accounting Pronouncements

Information regarding the effects of new accounting pronouncements is included in Note 21 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K.

Information regarding the effects of new accounting pronouncements is included in Note 21 to the accompanying consolidated financial statements included in Item 8 of this Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis